AAR & TOL 02 (Nov 08 - Jul 09)

[kennynah]

noted 0e2008...

you mean, monitor the various key sector indexes?? yes?

[BlackCat]

it is necessary for anyone serious about making money from the markets to have an opinion....

Thanks, interesting discussion,

I'm trying to develop a simple, lazymans trading strategy. Something like "sell when the market starts a downtrend (from IBD) and my stocks have definately broken their uptrend (based on simple reversal patterns or LHLL)". So far neither criteria is met, though SG property counters come close for the 2nd one.

I'm still learning basic TA. It seems to me that the best TA does not give opinions on the future, but only talks abt what *has* happened or what *is* happening. What *may* happen later is always covered both ways (eg: if the H&S forms --> bearish, if it breaks out afterwards --> bullish).

Winston's idea is interesting - try to predict what can happen in the future and act when/if the mkt takes it into account (?). A lot of work though and I'm not very good with the 'macro trends' theme.

[kennynah]

I'm still learning basic TA. It seems to me that the best TA does not give opinions on the future, but only talks abt what *has* happened or what *is* happening. What *may* happen later is always covered both ways (eg: if the H&S forms --> bearish, if it breaks out afterwards --> bullish).

hahaha...that's applicable to those who comment TA for a living...

but for the rest of the TA traders/investors... it is either getting rewarded for an executed opinion based on a TA call or get screwed... just that simple...

[BlackCat]

Really, I thought it was the other way round.... listening to the talking heads would give you lots of cast iron predictions about what would happen in the future (whether from TA, FA or astrology) ... looking at a chart tells you what is happening now, even if its just something a simple as whether the stock is still in an uptrend.

The way I see it, I am trying to cover how I would react to different possible situations... especially the worst cases... Rather than trying to predict what situation will occur. eg: If I sell everything tomorrow, what will I do if the market immediately afterwards looks like it is resuming its uptrend by jumping up on higher volume? Chase and buy in again, buy half, sit it out...?

Can you give an example of an 'opinion' (does not have to be for the current market)?

[kennynah]

i will try to give an example...

for a while now, i have been holding on to the opinion that spx will correct... from the Price/Volume actions of the past 3 months or so, based on astrology, fengshui master, whale migration pattern, etc or perhaps from other simple TA indicators...

when spx will correct, i have no clue...until lately, i revisited the chart and witnessed the possible Head&Shoulder formation... henceforth...my "opinion" then tells me to setup a trade with a bearish bias with an entry point where the right shoulder height is currently...

what then is a setup? a setup always comprises an entry point, a stop loss point and possibly a profit taking point... and this would be for simple non-options positions... as to where the stop loss and profit exit points are...is a different topic of discussion, which we will dispense for now...

but just to indulge a little ....why the stop loss... besides the obvious reason of limiting one's risk in that open position... it is there becos our opinions matter no more than an ant's existence... meaning very little ...and it is thus always enacted to recognize that our opinion can be wrong...and over time given enough trades, we WILL get it wrong.... but just becos our opinion will be wrong at times should not deter us from trading/investing, right? if some one is ever so afraid of losing money to the market, then that person is better of never trading/investing..bcos she is simply too naive for this profession/endeavour...

so,having an opinion is required to form a trade/investment position...and having a stop loss point is in recognition of that fact that our opinion will not influence the market direction...

you see, i dont go around thinking if i will see the moon tomorrow night becos it might be a cloudy evening...or if the sun will cast another aurora tomorrow... i dont give too much thoughts about those... just as i wont give a hoot if market will hit my stop loss first or my profit exit point first... one of those will happen at some time... and since i have measured my risk to my possible reward, i must be prepared to lose or win based on my "opinion", which is formed using TA indicators....

but this concept is not restricted to TA folks only.... even FA folks should have their own "opinion" as to whether it is time to be Long or Short... much like... add coffee powder first then sugar then hot water... or sugar, water, coffee powder or whatever order u fancy...the result is the same coffee....right? thus, FA or TA.... no opinion, no entry into market.... which = no possible profits...

so...if i do not have any "opinion", and then execute it...otherwise, pray tell, how should one trade/invest?

[BlackCat]

Thnks for the example,

So your'e not really trading on your opinion, but using it to find setups which you can trade on.

How could you trade/invest without an opinion? Some ideas:

- If whatever indicators/criteria you are using for the mkt as a whole and for individual stocks says they are going up, then go long. eg: IBD for the market as a whole, whatever TA for individual stocks.... Don't care if its gonna be a false breakout (< 2 weeks), bear mkt rally (mabye 3 months), mini bull, or super big bull. Just look for safer entry points and scale in as the market goes up. When the indicators reverse, scale out (or cut loss).

- If stock prices are low, comparable to past bear markets, just start buying.. and average down if they go lower. eg: for sgx mid caps which have easily understandable balance sheet and recurring cashflows, would be looking at criteria like fwd PE of 7-8X, 20-40% of stock price is nett cash, sustainable yields of 8-10% : stuff you only see widely occuring in bear markets. Even if the market is going to fall further, provided that Singapore dosen't disappear, you know there will be a bull sometime, and you can easily make 50-200% profit within, lets say 5 years. Not applicable today, though.

- I read the turtle trading book, amazed it was so simple (trend following system based on some ridiculously simple criteria, MA crossover I think, and sizing their positions according to volatility). They mentioned they spend most of their time losing money, but make it all back and more in a few good years (like the last two). They don't know when the big breakout (or breakdown) is going to occur, so have to stick to it religiously, long periods of 'paper cuts' along the way. Not for me, but makes sense if you're the type that could stick to it.

So I'm trying to follow the market, or act on whats happening *now* (or actually in the past if looking at fundamentals)... sometimes I think it betters to try not to think abt whats going to happen in the future.... mabye its coz I think too much

[kennynah]

i'm afraid we are not communicating effectively... it's ok...

all the best to you...good luck...

[iam802]

Thnks for the example,

....
- I read the turtle trading book, amazed it was so simple (trend following system based on some ridiculously simple criteria, MA crossover I think, and sizing their positions according to volatility). They mentioned they spend most of their time losing money, but make it all back and more in a few good years (like the last two). They don't know when the big breakout (or breakdown) is going to occur, so have to stick to it religiously, long periods of 'paper cuts' along the way. Not for me, but makes sense if you're the type that could stick to it.

...

The Turtle rule can be further simplified (assuming you are a mahjong player).

You can try winning throughout the night with many small wins...and even try winning a small one against the risk of losing a big one.

or you can try winning with a few big games but keep your loses real small.

Most mahjong players should be able to understand what I am trying to say. Pardon my limited English power.

[kennynah]

frankly...duno what those turtles, tortoise, orguis, etc...ya..read the book...nice to read..inspirational...but it's just a man's account of his past and trading experiences...nothing like getting your hands into the market..and learn the hard way... just play the game diligently is enough... alot theory...not much use one... like learning how to swim on dry land... wont ever make it...

heng heng probably says the above better than all of us added together...

anyways...not intended to offend anyone nor hurt anyone's feelings here...

[Cheng]

Thnks for the example,

So your'e not really trading on your opinion, but using it to find setups which you can trade on.

How could you trade/invest without an opinion? Some ideas:

- If whatever indicators/criteria you are using for the mkt as a whole and for individual stocks says they are going up, then go long. eg: IBD for the market as a whole, whatever TA for individual stocks.... Don't care if its gonna be a false breakout (< 2 weeks), bear mkt rally (mabye 3 months), mini bull, or super big bull. Just look for safer entry points and scale in as the market goes up. When the indicators reverse, scale out (or cut loss).

- If stock prices are low, comparable to past bear markets, just start buying.. and average down if they go lower. eg: for sgx mid caps which have easily understandable balance sheet and recurring cashflows, would be looking at criteria like fwd PE of 7-8X, 20-40% of stock price is nett cash, sustainable yields of 8-10% : stuff you only see widely occuring in bear markets. Even if the market is going to fall further, provided that Singapore dosen't disappear, you know there will be a bull sometime, and you can easily make 50-200% profit within, lets say 5 years. Not applicable today, though.

- I read the turtle trading book, amazed it was so simple (trend following system based on some ridiculously simple criteria, MA crossover I think, and sizing their positions according to volatility). They mentioned they spend most of their time losing money, but make it all back and more in a few good years (like the last two). They don't know when the big breakout (or breakdown) is going to occur, so have to stick to it religiously, long periods of 'paper cuts' along the way. Not for me, but makes sense if you're the type that could stick to it.

So I'm trying to follow the market, or act on whats happening *now* (or actually in the past if looking at fundamentals)... sometimes I think it betters to try not to think abt whats going to happen in the future.... mabye its coz I think too much

Hi BlackCat,

Different traders have different strategy, what works for me might not work for you. You have to explore what kind of trader you are, that fits your personality. There is no right or wrong method as long as you make money.

Some traders swear by MA or RSI or whatever indicator. It is good as long as it tells you where the trend is, help you make a high probability bet. One can take small profits in and out many times. Another might take some small losses but ride for huge profits. A trader can teach someone his winning formula but that person might still lose money.

Nothing beats the real experience you get when you bet your own money to learn from mistakes and successes.

Good luck!